The $16.7 billion budget approved by a City Council majority that rejected Mayor Brandon Johnson’s corporate head tax required the city to make a full $260 million advance pension payment to stave off another costly reduction in Chicago’s bond rating.
The Johnson administration ignored that mandate, made a half payment of $130 million in January, and promised to pay the other half in the second quarter of this year. Now that second installment is in jeopardy.
During a daylong Budget Committee hearing Thursday on the city’s midyear financial report, top mayoral aides said they are evaluating when and how much the city can afford to pay.
What’s changed is the protracted problem of delayed property tax payments from Cook County tied to the long-stalled overhaul of the county’s computer system by Texas-based Tyler Technologies.
Budget Director Annette Guzman said the continued delay has forced the city to make advance monthly payments to its four city employee pension funds when those funds “need cash” to cover employee benefits “so they don’t have to liquidate investment assets accruing investment returns.”
“The delay is less of an issue of our cash balance and more about helping the pension funds stay afloat while the property taxes are delayed,” Guzman said. “But it does cost us … by pulling dollars out of our own investments. The [Cook County] treasurer’s office has told us it’s probably about $18 million since 2022 that we have lost value in by not having our money be able to stay in our own investments.”
Acting Chief Financial Officer Steve Mahr credited “high-returns in a good market” for increasing the unfunded ratio — the percentage of assets to cover future liabilities — at the four city employee pension funds from 25.6% to 28.1%.
Determined to maintain that progress, Mahr hedged when asked whether the Johnson administration was still committed to paying the second half of the pension advance in full.
“Cook County indicated a few weeks ago that property taxes are likely to be delayed by about two months. Now that we have this news about Cook County property tax delays coming again this year, we are continuing the analysis to determine when and in what amount we will make the second installment of the supplemental pension payment,” Mahr said.
Retiring Ald. Marty Quinn (13th) reminded Mahr that restoring the full $260 million pension advance was “one of the driving forces behind the budget battle last December” adding, “It’s not gonna go away. The promise that we made to our workforce isn’t gonna go away.”
Former Mayor Lori Lightfoot started making advance pension payments over and above the annual amount actuarially required by state law after receiving a $1.9 billion avalanche of pandemic relief funds. Since then, the city has made $820 million worth of advance payments.
Mahr said he is “acutely aware” of how important it is to Wall Street rating agencies to continue making those advance payments.
“My goal, my commitment is to figuring out when we can make that payment in the context of all of the other things going on here in the city, including property tax payments,” he said.
Matt Fabian, a partner in Municipal Market Analytics, an independent research group focused on municipal bonds, said delaying or even skipping the second half of the pension advance “shouldn’t be the end of the world.”
He said he did not believe it would trigger yet another drop in a Chicago bond rating that Moody’s Investor Services has pegged at one notch above junk.
“Rescheduling an advance payment in the face of a payment disruption from Cook County is a very reasonable choice. I don’t think that’s bad management on the city’s part. This is acceptable management in a crisis created by someone else,” Fabian said.
“Not making or just deferring one of these payments shouldn’t be the end of the world. … The rating agencies, I think, over-emphasize the city’s need to make those advance payments. So I’m a little off with them. But in my opinion, it doesn’t change the city’s credit.”
Civic Federation President Joe Ferguson said the problems caused by delayed property tax payments from Cook County shows “how close we are to an operational tipping point.”
“We’re really living in a world in which it’s money in, money out,” Ferguson said. “We’re using real-time draw from current employees in order to meet beneficiary obligations that we have. That is a sign that we are getting close to the cliff where we fall over.”